01/26/1995 09:10 AM FIN

MINUTES
SENATE FINANCE COMMITTEE
January 26, 1995
9:10 a.m.
TAPES
SFC-95, #2, Side 1 (000-340)
CALL TO ORDER
Senator Rick Halford, Co-chair, convened the meeting at
approximately 9:10 a.m.
PRESENT
In addition to Co-chairs Halford and Frank, Senators
Sharp, Donley, and Phillips were present. Senators Zharoff
and Rieger arrived while the meeting was in progress
Also Attending: Annalee McConnell, Director, Office of
Management and Budget; Tam Cook, Director, Legislative Legal
Services; Nancy Slagle, Director, Division of Budget Review,
Office of Management and Budget; Virginia Stonkus, Fiscal
Analyst, Legislative Finance Division; and Kathy Holmquist,
Senate Finance Secretary.
SUMMARY INFORMATION
SENATE FINANCE COMMITTEE ORGANIZATION AND PROCEDURES
REVIEW
Presentations were made by Tam Cook, Director,
Legislative
Legal Services; Virginia Stonkus, Fiscal Analyst,
Legislative
Finance Division; and Kathy Holmquist, Senate Finance
Secretary.
HB 100 - APPROP: FY 96 OPERATING AND LOAN BUDGET
Presentation made by Annalee McConnell, Director,
Office of Management and Budget (OM&B).
Co-chair Halford announced that the purpose of the meeting
is to review committee procedures regarding legislation.
Larry Stevens, Legislative Aide to Co-chair Halford, will be
in control of bill scheduling. Co-chair Halford referenced
his memo, dated January 19, 1995, outlining the Senate
Finance Committee Procedures and Bill Scheduling. He
announced a presentation of fiscal notes by Virginia
Stonkus, a discussion on drafting by Tam Cook, and the
organizational procedure of the bill files by Kathy
Holmquist.
Co-chair Halford observed (without an operating budget),
that fiscal notes, could be a greater problem early in this
session. The Finance Committee relies heavily on the deputy
commissioners (who have not yet been appointed) to provide
this information.
Co-chair Halford introduced Virginia Stonkus, Fiscal
Analysis, Legislative Finance Division, and invited her to
make her presentation. Ms. Stonkus began by referring to
the "Legislative Budget Guide: Swiss Army Knife of Budget
Handbooks". Within the legislative section of the
publication, she noted the technical procedural technical
steps on fiscal notes. Ms. Stonkus emphasized that
legislation to be proposed by statute, (anything that is not
an appropriations bill) will have to be accompanied by a
fiscal note before it can be reported out of committee of
first referral. On January 20th, the Office of Management
and Budget released a revised memo of detailed fiscal note
procedures. She referred to the one-page analysis of the
note, the assumptions used, and the economic impact. She
invited the committee to take advantage of Legislative
Finance for assistance in reviewing fiscal notes to: ensure
the assumptions are valid; that the program impact is
correct; and the position count is justified. She concluded
her presentation noting that Legislative Finance looks
forward to working with the staff.
Co-chair Halford emphasized that the first committee is to
attach the fiscal note. The bills are going to be posted
the preceding Thursday. Bills taken up by the committee
will require fiscal notes. He stressed that the committee
will not hold bills for administrative fiscal notes. It is
not the committee's intention to deny the administration a
chance to respond. In some cases, confusion on fiscal notes
is used to slow down legislation that is opposed by the
administration. Co-chair Halford indicated that he did not
want the committee to be in that position. He noted that
the committee will be using the Legislative Finance Office
to draw fiscal notes to bills coming out of a committee with
a zero fiscal note. Co-chair Halford thanked Ms. Stonkus for
the presentation.
Co-chair Halford introduced Tam Cook, Director, Legislative
Legal Services, and invited her to make her presentation on
drafting. Ms. Cook stressed that priority is given to the
Finance Committee in drafting amendments and committee
substitutes. She explained that only one or two attorneys
will have expertise on any particular project. She explained
that it will not be possible to pass on a given subject
between attorneys. Therefore, she asked that Legal Services
be warned, as early as possible, when a need for assistance
with legislation is required. Ms. Cook requested advanced
notice, with subject matter, be given to her office when
there is a need for an attorney, including evenings or week-
ends. She stressed that Legal Services gives priority to
all drafting to enable all committees to continue to
function. She stressed that Legal Services has a strict
policy of attending to sectionals after drafting.
Committees can function without a sectional from Legal
Services but they cannot function without their committee
substitutes and bill drafts. Legal Services searches into
"hot" legal issues, consequently, there are some committee
chairs that prefer to see a sectional out of Legal Services.
Ms. Cook noted that Legal Services cannot promise it can
provide sectionals, and warned against holding up committee
action. She informed the committee that the new computer
system has slowed production. She explained that with the
upgrades and disconnection of the mainframe, the length of
time to print is longer. The process time has increased
from 2 minutes to 15 minutes for a three page document. Co-
chair Halford expressed concern and asked that if, within
the last 30 days of the session, the system is not running
as quick or quicker than last year, the Co-chairs and
presiding officers be so advised so the issue can be
resolved. Co-chair Halford stressed that inability to print
is a major cause for loosing legislation.
Co-chair Halford questioned Ms. Cook as to the turnaround
time for responding to a half-page amendment. She responded
that it was not possible to give a time frame. She
explained that the number of amendments has escalated
significantly. Last year was a record year. She noted that
up to 40 to 50 requests per bill were prepared by Legal
Services. She said there is a limit. Legal Services cannot
draft every amendment that is received. She emphasized a
need for Legal Services to look at amendments; it enables
smoother preparation of a committee substitute. She
stressed that Legal Services will give priority to committee
substitutes and amendment requests over new bills.
Ms. Cook brought attention to the Ethics Committee's open
meeting guidelines. They are not yet in effect, but she
warned that they will have substantial impact on the type of
notice that committees must give. Right now the guidelines
are strict and they require subcommittees to comply with the
preceding notice requirement. When the guidelines are
passed, she noted, they may have an organizational impact on
the operations of the committee. Co-chair Halford requested
that Legislative Finance prepare a fiscal note on the ethics
guidelines.
Co-chair Halford turned the floor over to Kathy Holmquist,
Finance Committee Secretary. Ms. Holmquist introduced
additional Finance Committee staff: Norma Strickland,
Secretary, and Rose Sturgis, Page. Ms. Holmquist briefly
spoke to preparation of the bill files. Co-chair Halford
expanded on the procedure by pointing out the deadlines. He
asked that major amendments at the last minute be avoided.
Folders must be available by 3:00 p.m. the day before the
hearing. By 11:00 a.m., the material must be given to his
Aid, Larry Stevens, for distribution.
Co-chair Halford requested a brief recess at 9:30 a.m.
Co-chair Frank reconvened the meeting at 9:40 a.m.
HB 100 - APPROP: FY 96 OPERATING AND LOAN BUDGET
"An Act making appropriations for the operating
and loan program expenses of state government and
to capitalize funds; making appropriations under
art. IX, sec. 17(c), Constitution of the State of
Alaska, from the constitutional budget
reserve fund; and providing for an effective
date."
Presentation made by Annalee McConnell, Director,
Office of Management and Budget (OM&B).
Co-chair Frank introduced Annalee McConnell and welcomed her
to the meeting. He emphasized that the committee looks
forward to working with her. Co-chair Frank invited her to
bring to the table any of her staff.
Ms. McConnell gave a brief synopsis of her past experience.
She began with her affiliation as budget director when
Governor Knowles was in his second term as Mayor of
Anchorage. She emphasized that this was during the 1986 oil
crash, which gave her experience at a time of monetary
instability. She spoke of her experience with Alaska Native
Foundation, and her work with small villages, particularly
in western and northwestern Alaska, as well as Kodiak
Island. She emphasized her work in the larger urban areas as
well. Ms. McConnell mentioned that while she has not been
employed by the state government before, her other
responsibilities have put her in contact with state
agencies.
Ms. McConnell introduced her staff to the committee and
asked that they be excused so they could go back to their
other assignments: Nancy Slagle, Director of Budget Review;
Budget Analysts are Jeff Hoover, Dept. of Transportation and
Public Facilities, Dept. of Community and Regional Affairs,
the Governor's budget, Dept. of Military and Veteran
Affairs, and the Capital budget; Danith Watts, Dept. of
Health and Social Services, and Dept. of Revenue; Laura
Baker, Dept. of Environmental Conservation, Dept. Natural
Resources, and Dept. of Fish and Game; Royce Weller, Dept.
of Labor, Dept. of Commerce, and the University of Alaska;
Dan Spencer, Dept. of Education, and Legislation budget;
Deborah Driver, Dept. of Law, Courts, Dept. of Public
Safety, and Corrections; Policy Analysts are Jack
Kreinheder, Fred Pierce, and Jack Fargnoli.
Ms. McConnell emphasized her goals as Director of OM&B. She
spoke of expanding the time horizon of fiscal planning to 5
years and beyond. She addressed issues that tend to cut
across departmental lines and are of concern to the
committee, such as deferred maintenance, and issues of
program receipts. She said that she is interested in
developing a good working relationship between the
administration and the legislature on the budget issues. Ms.
McConnell stated her commitment to integrity and openness in
all dealings with the public, the legislature, and with each
other within the administration and various departments.
Ms. McConnell addressed the specifics of the budget process
and the time line. The administration began working
immediately with the acting commissioners on the 1995 budget
supplementals and 1996 budget. Obviously, we were taking
that which was prepared by the previous administration. She
stated that this administration did not have the same lead
time that most transitioning teams have to analyze the
budget. The permanent commissioners are just now coming on
board. The previous administration's material, which had
been prepared in OM&B, reflected $69.9 million in proposed
supplementals to the 1995 budget. Ms. McConnell continued
that OM&B has made a conscious decision to work with the new
commissioners in preparing a realistic budget package. She
stated that many of the items in former Governor Hickel's
supplemental materials were the result of conscious policy
decisions by the legislature last year. As an example, for
oil and gas litigation, the legislature made a determination
to give half year funding and require that the department
come back to defend the remainder. She pointed out other
areas, such as corrections, where the legislature knew there
would be a need for additional funds to get through the
year. She said that OM&B is evaluating those as well as
other items. The schedule at this time is to have those
supplementals to the committee within the next three weeks.
The statutory deadline is February 14th. It is the
Governor's intention to provide the package earlier. The
1996 amendments presented by Governor Knowles, December
15th, indicated he would present amendments by the end of
February, which would be in advance of the statutory
deadline. Again, Ms. McConnell stated that Governor Knowles
has asked that it be brought forward sooner.
Ms. McConnell addressed the 5-year fiscal plan and the
commitment to expend within recurring revenues. She
explained that the 5-year fiscal projection will be a tool
for looking at the out-year
impacts of current year budget recommendations. She said
this is a similar tool she put into place in the
municipality of Anchorage. It was an active decision-making
tool. The prior administration had a very general 5-year
projection, but minimal projection techniques. For example,
all state expenditures were extended out at population and
inflation growth. She pointed out the unreality,
particularly within formula programs where there are
different growth factors, depending on education, medicaid,
etc. The same is true with revenues. While the state has
the oil price and figures, there has not been much
refinement as to how the program receipts are pushed out
into the future.
Ms.McConnell drew attention to the administration's
"Preliminary Draft of Fiscal Model Being Developed" chart.
Some adjustments have been made insofar as breaking out
different parts of state government. Information is being
provided by departments regarding growth within their
agencies. This document does not incorporate policy
decision. It is simply to show the size of the fiscal gap
for 5 years (excluding any decisions to change either
revenue structures or program expenditures). The
administration is developing a tool to see where the state
is headed and take specific looks at impacts for proposed
capital projects. OM&B is also working with the Dept. of
Administration to: finite labor costs; to determine how that
will be included in the out-year budgets; and the handling
of revenue projections. In general, she said, this does not
include any proposals on the 1996 budget amendments. It
shows approximately $80 million in supplementals for 1995
(the amount of money recommended by the previous
administration, plus other items which have since come in).
She noted that this is not an indication of what the final
number will be.
Ms.McConnell then referred to the "Five-Year Projection -
Mid Case" chart. She pointed out the FY 95 projected gap
will be about $300 million, to be filled from the
constitutional budget reserve fund. She said that next year
would jump to over $500 million, and by the year 2000 we
would be well over $900 million (excluding any decision
about revenue or expenditures). She pointed out that the
figure to be concerned about is between 1995 and 1999. The
state would be using $2.63 billion in reserves, leaving the
constitutional budget reserve fund wiped out in 1999. These
figures do include the BP settlement amounts of $350 million
in the next two years.
Ms. McConnell switched to the "Five Year Projection - with
One Low Year" chart showing the danger point. Using 1997,
the budget gap could be $970. million. She feels that the
public does not have a sense of the magnitude of this
information. She stated that there is work that needs to be
accomplished to disseminate this information. People need
to understand why we are making these necessary painful
choices over the next few years.
Senator Phillips interjected that his public is aware of the
problem.
Senator Rieger asked what the administration's position is
on the G.O. debt? Ms. McConnell responded that the
administration is just beginning to look at capital
financing. She could not yet give a recommendation, but
said it is an item up for discussion next week.
Senator Rieger said that he was skeptical. He felt that
there has been enough mortgaging of the future. He inquired
what would happen to contributions toward the Public
Employee Retirement System (PERS) over the next four years,
and if OM&B shows steady or increasing contributions. Ms.
McConnell could not answer the question, but indicated that
she would look into it.
Senator Frank wanted to make clear that this presentation
does not reflect any decision or policy recommendations by
the administration, but more a snapshot of what would happen
given the inflation rate. He noted that the Governor has
made repeated statements that he would veto any increases
over prior-year appropriations in all areas, excluding
education. He noted that this is not Ms. McConnell's
recommendation, it is a projection of what will happen if
growth were allowed. Ms. McConnell emphasized that the
various departments understand how their areas must fit into
a bigger picture and the impact of what happens if that is
not accomplished.
Senator Frank asked if OM&B is planning on providing a
follow-up projection based on recommendations regarding the
fiscal gap? Ms. McConnell indicated that when the FY 96
budget amendments are presented, OM&B will have a projection
that would include proposals for FY 96. At that point we
will not have recommendations for years beyond 1996, but at
least we will be showing our proposals and detail work such
as breaking down major programs and using actual projections
such as education.
Senator Halford inquired as to the governor's statements
relating to vetoing increases. Would the governor veto
increases, with the exception of education? Is this in
nominal dollars or inflated dollars? Ms. McConnell
responded that the Governor meant it in actual nominal
dollars. She also clarified that the Governor also said in
the State of the Budget speech, that he is referring to the
total 1995 budget. But, as we know, there are other items
such as oil and gas litigation, corrections, etc. which were
not funded for the full year. Obviously, the pledge cannot
be against the partial year. It is the total 1995 budget.
Ms. McConnell said it is not a department-by-department,
across-the-board cut. It is a total dollar amount with the
exception of education.
Senator Halford brought up the question of supplementals.
He said he felt it was important that those who felt
strongly, express their opinion. He was specifically
referring to the decisions in the previous administration's
package where a manager decided to spend beyond that which
was appropriated. Senator Halford made clear that he would
not vote for a supplemental that includes decisions to spend
beyond the appropriated level -- in those areas that are not
obvious to the legislature as the area of conflict or
conscious decision in the last budget. He felt that what
happens in supplementals would define where this legislature
and this Governor are going. He stated it was important for
OM&B to know if others feel the same way, then a conclusion
could be drawn. It is important when only half way through
the year, managers are told that they need to stop spending
at a level above appropriation and try to make it up in the
year that still remains. If in fact, it is not identified
until May, it is more difficult to respond to the problem.
Ms. McConnell expressed her concerns on how money is
expended once it is appropriated. The focus seems to be on
the budget in terms of OM&B activity, rather than
expenditures and how it is going once the budget is
approved. She pointed out that she has not solved that
problem yet, but assured the committee that the incoming
administration has been somewhat crippled in dealing with
the situations Senator Halford described. The new
administration had no legal control on what happened up to
December 5th. However, with new commissioners just coming on
board and not being in a position for a few months to delve
into the areas of concern, Ms. McConnell asked that the
legislature be understanding. Until the administration
brings forward the 1995 supplemental requests, that is the
position it is in. There are certain areas within the
departments where they are at a critical level of spending.
She said that the legislature's first opportunity to see how
OM&B conducts business is not so much in the 1995
supplemental or even the 1996 budget process. What will be
important, in terms of evaluating the administration's
budget capabilities, is what happens in 1997. Ms. McConnell
affirmed that one of her goals is making the adjustments now
within departments and evaluating budgets and guidelines
provided to departments. Otherwise, the administration
will never be able to form a budget that reflects the
management that she, along with the governor and
commissioners, believe in.
Ms. McConnell said she is focusing on the long-range vision
and employing preventative measures, rather than turning off
the "spigot". It is much easier for the commissioners to
find the areas that are in trouble, with respect to needing
supplemental money, than it is to find the places to cut.
Senator Halford explained that he understands the normal
rule does not work. The first source of a supplemental
should be the salary of the manager that decided to spend
beyond his budget. In many cases that manager is gone and
replaced. It is a contest of agencies convincing the
commissioner of their needs while at the same time
identifying the duties of the agency. That contest is going
on all over the state. From the legislative perspective, it
is important that the legislature refrain from being drawn
into a continual supplemental process. If the legislature is
directed by the administration and continuously follows it,
as we have sometimes done, we give away the power to
appropriate. Senator Halford said that the legislature
might just as well not bother to appropriate if the agency
is going to expend without regard to the amount identified.
He noted that the legislature is thus not in charge of state
spending as the constitution dictates. He made clear, that
if the person who made the decision is still there, and the
decision is bad, it is going to affect his attitude towards
that supplemental. If on the other hand, the person is not
there, and OM&B is doing everything to turn it around, that
is understandable.
Senator Phillips confirmed that he agreed with Senator
Halford.
Ms. McConnell acknowledged a need to develop a clearer set
of roles for the executive and legislative branch in the
appropriation process. One of the ways to get there is to
present to the legislature good faith efforts to show what
the administration believes is a total year budget. If you
have a lack of confidence in the management of those
appropriations, then it is an indication that you want
clarification. She reiterated that OM&B needs to be
involved in ensuring that expenditures are appropriate.
What goes on during the year is not just a matter of adding
up the number of dollars spent, it is also the effectiveness
of the spending along the way.
Senator Zharoff asked about the revenue and if there were
other anticipated sources of revenues coming into the state?
Ms. McConnell responded that the "Notes" for 1995 as
indicated on the chart, shows AHFC, for 1996; previous
Governor Hickel's budget reflects AIDEA, Executive Life, and
DNR land sales. However, there are no other new sources of
revenue. It does include $5 million in increased program
receipts (mostly fees included in previous Hickel budgets).
Ms. McConnell asked if the committee would like to have OM&B
return to answer any questions between now and when the
supplementals come before the committee. For example,
program receipts. She asked if there were suggestions
regarding this fiscal projection. OM&B would be most
interested in having comments referred to Brad Pierce, or
any of the other policy analysts.
Senator Phillips noted that when he was Chairman of Budget
and Audit, the Hickel administration overturned the
committee's denial of two RPL's. Prior to that time, every
other governor had followed the recommendations of Budget
and Audit. What is the feeling of the administration if
Budget and Audit turns down one of the RPL's? Are you going
to honor the committee's decision? Ms. McConnell responded
that Nancy Slagle brought that situation to her attention
just recently, and that she has not had a chance to look
into the details. She said she wants to get more
information before she comments. Senator Phillips made it
known that traditionally the executive branch honored
whatever Budget and Audit decided on the RPL's. Ms.
McConnell questioned whether this could have been a case
where each branch was not sure what the other was going to
do? Her preference in a working relationship is to be up
front. She stated, she does not intend to inflate costs,
with the intention of being cut in size. That wastes a lot
of time. Senator Phillips said he was not happy when the
Hickel administration overturned the RPL's, in effect saying
that the legislature is not important. Senator Phillips'
intention was to defend the honor of the committee, and the
legislative branch, once a decision had been made.
Senator Rieger brought up the subject of lapse money. It
might be worth considering appropriation by appropriation
carryover language so that an agency would have an
inducement not to spend that money. Instead, they could
chose to carryover to July of the next fiscal year. In a
time of tighter budgets, that might lead to more efficient
expenditure of state dollars than trying to bring the lapses
up. Co-chair Frank reiterated that the incentives are all
the wrong way. If you d not spend the last dollar, you will
not get it in your base for the next year. Co-chair Frank
suggested that at the OM&B level, one of the ways the
Finance Committee should deal with the supplemental is to
fund the supplemental from lapse money and give OM&B the
incentive to find the lapse money. There has to be a way to
reward for the right kind of performance rather than
continuously rewarding for the wrong kind of performance.
Ms. McConnell responded that a concern brought to her
attention by government agencies is that if they save money,
they are often penalized in the appropriations process,
particularly where there are across-the-board cuts. She
stated that OM&B wants to deal with this issue. She brought
up other initiatives that OM&B is considering: performance
budgeting; the impact of program activities that cross
departmental lines along, the creation of inter-departmental
teams within the administration to deal with issues that cut
across lines, and the provision of incentives to eliminate
duplication. This can be very difficult for the
commissioners to do this, because they are facing their
employees and the citizen groups and making some very
difficult choices. The governor mentioned one of them in
particular, in his State of the Budget speech, relating to
job training and looking at the various places within state
government.
Co-chair Frank commented that on the committee would be
interested in working with OM&B on program receipts. He
stated that different kinds of program receipts, need to be
handled differently as opposed to lumping them all together
and handling them all the same. Co-chair Frank asked if
there was any other business. He thanked Ms. McConnell for
her presentation.
ALASKA STUDENT LOAN SUBCOMMITTEE
Co-chair Frank addressed the committee with the intention of
forming a sub-committee or a working group to look at the
Student Loan Corporation. He stated there is a need to come
up with a plan to make it financially feasible in the
future. He appointed Senator Rieger to Chair the
subcommittee with Senators Phillips and Zharoff serving.
ADJOURNMENT
The meeting was adjourned at approximately 10:30 a.m.